Major tenant Lincoln Financial weighs its regional options
By Greg Bordonaro
October 17, 2011
After being on the sales block for nearly six months, the Metro Center class A office tower in downtown Hartford has garnered interest from potential investors, but a deal is not likely to happen anytime soon, sources familiar with the situation say.
While the 12-story, 290,000 square foot tower on Church Street is seen as an attractive target, the future of the building’s anchor tenant remains in doubt, making it difficult for interested buyers to pull the trigger on a deal, sources say.
The lease of Lincoln Financial Group, which occupies 185,000 square feet in Metro Center, is set to expire in 2013 and the company is not yet making a long-term commitment to stay in the building.
Lincoln Financial spokeswoman Anna H. Gauthier said the company has retained brokerage firm Grubb & Ellis to explore its real estate options “in the immediate Hartford area.”
That means the company could stay in Metro Center, move to another downtown location, or potentially leave Hartford altogether.
But that decision won’t be made for another six to 12 months, Gauthier said. And that will make Metro Center a tough sell in the meantime.
“We’ll make a decision based on what best serves the needs of Lincoln Financial and our Hartford employees,” said Gauthier, who added that the company remains “committed to maintaining a presence in the Greater Hartford area.”
Gauthier said Lincoln does not have plans to leave Connecticut when its lease expires.
The Metro Center went up for sale in April after its former owner — Northland Investment Corp. — lost the building to foreclosure earlier this year.
The office tower, which also includes an attached parking garage with over 1,200 spaces, is now controlled by a special servicer, which is looking for potential buyers.
Real estate brokerage firm Cushman & Wakefield is handling the sale of the building.
Lincoln Financial is Metro Center’s anchor tenant, occupying about 185,000 square feet of office space and an additional 6,000 square feet of storage space. The company houses several business functions there, including insurance and retirement services, information technology, retail distribution, wholesale brokerage, and marketing and sales.
The Connecticut Business & Industry Association occupies another 40,000 square feet in Metro Center, while the top two floors in the building, which encompass about 52,000 square feet, are vacant.
The value of a commercial building is based in large part on the quality and length of its leases as well as the cash flow derived from them. As a result, the potential loss of an anchor tenant like Lincoln Financial, which occupies more than half the space in Metro Center, makes the property a much more difficult sell, particularly in a weak office leasing market.
It makes financing a potential purchase of the building nearly impossible because bankers will view the deal as too risky.
That means Metro Center will likely stay on the sales block until Lincoln Financial figures out its long-term office needs in Greater Hartford.
A deal could be struck sooner if an all cash buyer steps in, but that is an unlikely scenario, sources say.
Joel Grieco, a broker for Cushman & Wakefield, which is handling the sale of Metro Center, said the property has garnered a lot of interest because of the quality of the building and the fact that it has a connected parking garage.
“It is a very high quality asset with the highest parking ratio of any downtown building,” Grieco said.
Northland Investment Corp. bought Metro Center for $10 million in 1997, a significant discount for a building that was built in 1986 for $57 million. At its peak, the building sold for $84 million in the late 1980s.
Northland lost Metro Center in January after it stopped making payments on a $25 million mortgage, which matured in 2010.
The building hit the sales block at a time of great uncertainty in downtown Hartford’s commercial real estate scene. Office vacancy rates have reached as high as 30 percent recently downtown, as companies have shrunk their real estate footprints during the economic downturn.
Other issues, including high property taxes and the allure of more low-cost office space in the suburbs, have also played a role.
And competition for tenants is fierce with several downtown buildings remaining completely vacant, including the 26-story Bank of America building on 777 Main St. and the Connecticut River Plaza, which is marketing free parking to prospective tenants.
At the same time, Metro Center isn’t the lone class A office tower currently on the market. City Place I on Asylum Street is also on the sales block with the advantage of being fully leased with major long-term tenants like UnitedHealthcare. The Bank of America building was also put up for sale by its owner Michael Grunberg, who has considered converting the office tower into residential units.
And there could be more prime downtown real estate going up for sale soon. The foreclosure cases involving two other buildings owned by Northland — Goodwin Square and City Place II — appear to be in their final stages, and could result in the Massachusetts-based development company losing control of both of those office towers as well.